Operating budgets are a primary component of the master budget and involve examining the expectations for the primary operations of the business. Assumptions such as sales in units, sales price, manuf...Operating budgets are a primary component of the master budget and involve examining the expectations for the primary operations of the business. Assumptions such as sales in units, sales price, manufacturing costs per unit, and direct material needed per unit involve a significant amount of time and input from various parts of the organization. It is important to obtain all of the information, however, because the more accurate the information, the more accurate the resulting budget.
The direct materials cost budget looks at the total cost of materials available to be used in production by adding what was already on hand at the beginning of the year to what will be purchased durin...The direct materials cost budget looks at the total cost of materials available to be used in production by adding what was already on hand at the beginning of the year to what will be purchased during the year, taken from the direct materials purchases budget. From that total the remaining direct materials at the end of the year are deducted, since they were not used, to arrive at the cost of direct materials added to production during the year.
